Faltering fiscally

Monday

Apr 23, 2018 at 12:01 AM

By Brenda P. Wenning

We like to think of the United States as the freest, most democratic country in the world.

That’s not quite the case. And, in recent years, our economic freedom has been eroding. In 2008, the United States ranked fifth on the Index for Economic Freedom, with a score of 80.6 out of 100. After eight years of increasing government control through the most excessive regulation in the country’s history, the U.S. ranked 17th.

On the 2018 Index for Economic Freedom, the overall score for the United States improved by 0.6 points to 75.7, but other countries improved even more and the United States ranking dropped to 18th. Still, when we wrote about the index in 2016, the United States had lost ground eight times in the previous 10 years; at least this year we showed some improvement.

“While the U.S.’s economic freedom ranking has dropped due to comparatively better improvements in other countries,” The Heritage Foundation observed, “the increase in its overall score would seem to indicate that the decade-long decline in America’s economic freedom may have been arrested. There are signs of renewed labor market dynamism and increased growth, and major regulatory and tax reforms are spurring business confidence and investment. The continuing decline in the score for government integrity reflects a growing perception of cronyism, elite privilege, and corruption.”

While noting that the Trump administration has reversed the regulatory zeal of the Obama administration, the Heritage Foundation wrote that, “The Trump administration has undertaken regulatory reforms, but it is too early to judge their full scope and effect.”

And the government continues to subsidize many goods and services in sectors such as agriculture, health care and green energy.

The latest report also notes improvement in property rights, “rolling back of various acts of federal regulatory overreach in areas such as environmental protection, education and health care that had infringed upon them.”

Countries with a higher rank that the Unites States range from the United Kingdom (#8 at 78) and Canada (#9 at 77.7) to Hong Kong (#1 at 90.2), Singapore (#2 at 88.8) and the United Arab Emirates (#10 at 77.6).

Less economic freedom than socialist countries

It wasn’t surprising to see that three Communist countries – Cuba (#178), Venezuela (#179) and North Korea (#180) – are at the bottom of the index. Economic freedom in those countries is nonexistent.

What was surprising is that many countries that we think of as being socialistic finished ahead of the United States. In a truly socialistic country, the means of production are owned and controlled by the state. In Marxist theory, socialism is considered to be a temporary state, existing as a country makes the transition from capitalism to communism.

Today, even communist countries have allegedly private enterprises, but overall the government controls everything and personal freedom is limited.

Many left-leaning Americans think of Scandinavian countries as a role model for an American style of socialism. Likewise, Canada, England and other European countries are known for their socialized health-care systems.

So it’s surprising to see that Sweden (#15) and Denmark (#12) rank higher on the index than the United States (#18). Canada and the United Kingdom rank even higher, at #9 and #8, respectively. Remarkably, two countries that were part of the United Soviet Socialist Republic now rank above the U.S. – Estonia is #7, while Georgia is #16.

Sweden’s ranking is based on improvements in judicial effectiveness, government integrity and property rights, which outpaced lower scores for business freedom and monetary freedom.

“Sweden’s enviable living standards result from an economy that performs optimally because of regulatory efficiency and open-market policies that enhance flexibility, competitiveness and large flows of trade and investment,” according to The Heritage Foundation. “A transparent regulatory regime encourages robust entrepreneurial activity. Banking regulations are sensible, and lending practices have been prudent. The legal system provides strong protection for property rights, buttressing judicial effectiveness and government integrity.”

In other words, for the United States to become more like Sweden and Denmark, it needs to embrace capitalism, not replace it.

Estonia, which regained independence from the Soviet Union in 1991, is a stable multiparty democracy that is a member of NATO, the European Union and the Organization for Economic Co-operation.

“Successive governments have pursued a free-market, pro-business economic agenda and sound fiscal policies that have resulted in balanced budgets, low public debt and greater economic freedom,” according to The Heritage Foundation. “The rule of law remains strongly buttressed and enforced by an independent and efficient judicial system. A simplified tax system with flat rates and low indirect taxation, openness to foreign investment and a liberal trade regime support a resilient and well-functioning economy. Management of public finance has been notably prudent and sound.”

On a positive note, the world average score of 61.1 is the highest recorded in the 24-year history of the index. The average has increased by more than three points since the index began in 1995. Scores improved this year for 102 countries and declined for 75.

It will be interesting to see how the United States fares next year. Will tax reform and deregulation give the Unites States the push it needs to reverse “the decades-long decline?” Or will tariffs and other protectionist measures push the country even further down the list?

Brenda P. Wenning of Newton is president of Wenning Investments LLC in Newton. She can be reached at Brenda@WenningInvestments.com or 617-965-0680. For additional information, visit her blog at www.WenningAdvice.com.